Qualcomm shares slump as weak smartphone chip sales overshadow data-center momentum

On Thursday, Qualcomm's shares tumbled around 9% during premarket trading after smartphone chip sales failed to meet Wall Street's expectations. The decline in smartphone chip sales has raised doubts that the company's recent progress in data-center chip growth will offset the impact of weaker handset business performance. Should premarket losses persist, Qualcomm could potentially see its market value shrink by approximately $17.5 billion.

The semiconductor designer is grappling with a dilemma between surging memory costs driven by expanding data-center demand and the contraction of smartphone sales. As AI infrastructure spending continues to consume semiconductor supply across the industry, Qualcomm CEO Cristiano Amon informed Reuters that the memory shortage was anticipated and the company took preemptive measures.

Amon also highlighted that Android demand exhibited sequential growth, and the firm is making solid strides in broadening its business beyond smartphones. Despite this, Qualcomm's push into data-center and automotive chips has bolstered its long-term growth prospects. However, analysts at Morgan Stanley expressed reservations, stating that the increased clarity has yet to materialize into stronger near-term earnings due to factors such as the decline in Apple revenue and rising input costs.

The chipmaker's quarterly revenue from its handset division, which constitutes its largest business, declined by 26% to $5.14 billion, causing chip segment sales to shrink by 8% to $9.02 billion. Qualcomm's valuation stands at 16.78 times forward earnings, considerably lower than its peers such as MediaTek (25.41 times) and Intel (33.28 times). Additionally, at least eight brokerages have reduced their price targets on the stock following the disappointing results, as reported by LSEG data.